NZX 50 has worst annual slump since 1990, Tourism Holdings sinks

by Paul MacBeth

Monday 29th December 2008

New Zealand's benchmark NZX 50 index is headed for its worst annual slump in 18 years, as global growth stumbled and the domestic economy fell into recession, hurting retailers, tourist operators, and commodity producers.

The NZX 50 has dropped 35% so far in 2008, the steepest decline since 1990's 40% slide. Figures last week confirmed the New Zealand economy extended its recession into the third quarter and analysts predict it will continue into 2009. At the same time, the world's largest economies - Japan, the U.S. and Europe are heading for the first simultaneous recession since WWII.

"Most people are not in a mode to invest," said Barry Lindsay, head of research at First NZ Capital. "There's buyer exhaustion."

Tourism Holdings Ltd., the nation's largest campervan hire company, slumped 71% to 69 cents, erasing $167 million from its market value. Last month chairman Keith Smith predicted "a very challenging" second half, and said annual profit will be "well below" last year's $14.3 million. The company joined retailers such as Warehouse Group, down 38% this year, and rural services operator PGG Wrightson Ltd., down 52%, in downgrading their forecasts.

Rakon Ltd., which makes components for navigation systems, fell 67% this year. Last month, Rakon posted a 66% drop in first-half profit, and said earnings in its second half would be at the same level or lower amid weakening global demand.

"Next year will be one to batten down the hatches and hold on," said Craig Brown, who helps manage NZ$2 billion at ING New Zealand Ltd.

Whiteware manufacturer Fisher & Paykel Appliances Holdings shed 63% as it faced a volatile New Zealand dollar and one-off relocation costs as it shifted production to Thailand and Mexico. Chairman Gary Paykel said in the manufacturer's interim report that "no market was exempt from global economic fallout" and the company's outlook was uncertain.

Clothing retailer Pumpkin Patch Ltd. was hurt by falling demand, especially in the U.S., as its stock slumped 6%. Last month, chairman Greg Muir said he would step down from his executive management role in the company, remaining as chairman of the board.

New Zealand Farming Systems Uruguay, the company that's developing dairy farms in South America using New Zealand's intensive farming techniques, slumped 64% as global milk prices tumbled, and it had to abandon capital raising as financial markets deteriorated.

Fishing company Sanford Ltd. and petroleum explorer New Zealand Oil and Gas Ltd., NZOG, bucked the trend on the index, and were the only two stocks in positive territory.

Sanford jumped 27% as its full-year earnings surged 165% on one-time gains from asset sales and strong global prices for fish. The exporter is also benefiting from the kiwi dollar's 15% slide since its Sept. 30 balance date.

NZOG is up 8.7% this year, helped by revenue from its 12.5% share of the Tui oil field, and the prospect of the Kupe gas field coming on stream next year. It has cash holdings of NZ$240 million after shareholders took up options This month, it acquired 15% of Pan Pacific Petroleum, which owns 10% of Tui, increasing its exposure to the field.

"It's in good financial shape, awash with cash, and the markets are very aware of that," said Lindsay.

The economy contracted 0.4% in the third quarter, and economists expect the effects of the downturn will continue to bite in 2009 with as many as 75,000 job losses and a prolonged property market slump.

"The last six months of 2009 should find a floor. We could see some gains in the second half of the year," said Lindsay.

First NZ Capital's picks for 2009 include: Guinness Peat Group, which they expect to bounce back from underperforming in 2008; Warehouse Group which they see open to a takeover from Woolworths Ltd. in Australia; Sky City Entertainment Group which is proving to be a resilient stock that's improving under new management; Fletcher Building Ltd. which they see as being very cheap; and Sky Network Television Ltd., which is a "high quality company."

Lindsay predicts Contact Energy will benefit if the government finalises an emissions trading scheme next year, while Fisher & Paykel Healthcare is well-placed to take advantage of a weak New Zealand dollar.

(Businesswire.co.nz)

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